On December 21, 2020, the Board of Directors (Board) of NorthStar Healthcare Income, Inc. (NorthStar), a publicly registered non-traded REIT, approved a new estimated net asset value (NAV) of $3.89 per share of NorthStar common stock. This newly assigned NAV was arrived at with the assistance of a third-party independent valuation firm, Duff & Phelps, LLC. NorthStar last reported an estimated NAV of $6.25 per share as of June 30, 2019.

Investors in NorthStar, including many retail investors who invested in this non-traded REIT at $10 per share on the recommendation of a financial advisor, are unfortunately now likely facing significant losses on their investment principal (exclusive of any distributions received to date). Structured as a Maryland corporation operating as a REIT, NorthStar was formed in 2010 to “acquire, originate and asset manage a diversified portfolio” of healthcare-related real estate investments including certain “assisted living (ALF), memory care (MCF), skilled nursing (SNF), independent living (ILF) facilities and continuing care retirement communities (CCRC)….” The Company completed its IPO in February 2015, initially raising $1.1 billion in investor equity. Subsequently, through a follow-on offering and under its distribution reinvestment plan (DRP), NorthStar raised total gross proceeds of $2 billion through June 30, 2020.

As a publicly registered non-traded REIT, NorthStar was sold through a public offering at $10 per share. Unfortunately, in some instances, investors who purchased shares on the recommendation of a stockbroker may have been uninformed of the complex nature of the investment and its many risks, including its high up-front commissions and fees. As set forth in its prospectus, NorthStar charged investors a selling commission of up to 7% of gross offering proceeds, a dealer-manager fee of up to 3%, and an acquisition fee of 2.25% for properties acquired by the REIT. Such high commissions and fees add up quickly and act as an immediate drag on investment performance.

Furthermore, NorthStar is a highly illiquid investment product, meaning shares cannot be readily resold. Typically, investors in non-traded REITs and similar illiquid investment products must wait for an extended period of time (in some cases for a decade or longer) for a liquidity event to transpire, such as shares listing on a national exchange. Besides waiting for such a liquidity event, shareholders are left with few options, including redeeming shares directly with the sponsor under a share repurchase program.

Unfortunately, in certain instances investors may come to learn too late that their ability to redeem shares is severely limited, or even completely prohibited, under any share repurchase program. Such is the case with NorthStar. In October 2018, the Board approved an amended share repurchase program which severely limited share redemption, unless the shareholder had died or had a qualifying disability. Subsequently, in April 2020, amidst market uncertainty surrounding the COVID-19 pandemic, the Board altogether suspended any share repurchases, effective April 30, 2020.

Currently, NorthStar investors seeking liquidity are left with very limited and disadvantageous options. On the one hand, investors may participate in a tender offer from a third-party, to the extent one even exists. Alternatively, investors may also seek to sell some or all their shares on a fragmented and inefficient secondary market. As of late 2019 through 2020, shares of NorthStar were reportedly selling on such a secondary market for around $2.00-$2.50 per share. Therefore, based on an offering price of $10 per share, any investor who sold their shares through the secondary market at around $2.00 per share likely suffered considerable losses on their investment (exclusive of any distributions received).

The attorneys at Giarrusso Law Group LLC have significant experience in prosecuting claims on behalf of investors in non-traded REITs such as NorthStar, in addition to other complex and illiquid financial products. Investors may pursue a claim to recover losses through securities arbitration before FINRA, or in some instances, through litigation. Investors who wish to discuss a possible claim may contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a complimentary and confidential consultation.